Monarques Resources Inc. (TSXV: MQR) Releases Prefeasibility Results

Siddharth Rajeev, B.Tech, MBA, CFA Analyst October 20, 2014 Monarques Resources Inc. (TSXV: MQR) Releases Prefeasibility Results Sector/Industry: Junior Mining/Exploration www.monarquesresources.com Market Data (as of October 20, 2014) Current Price C$0.135 Fair Value C$0.50 Rating* BUY Risk* 5 (Highly Spec) 52 Week Range C$0.09 - C$0.14 Shares O/S 64,585,204 Market Cap C$8.72 mm Current Yield N/A P/E (forward) N/A P/B 1.8x YoY Return -3.6% YoY TSXV -14.7% *see back of report for rating and risk definitions Investment Highlights Monarques Resources Inc. ( Monarques, MQR, the company ) recently announced the results of a prefeasibility study ( PFS ) on its Croinor project conducted by InnovExplo Inc. InnovExplo had conducted a preliminary economic assessment ( PEA ) in 2012. Most results were inline with expectations though we were hoping to see higher reserves used. The PFS showed a slight increase in operating and capital cost estimates. The initial (pre-production) capital cost estimate is $20.28 million, excluding initial production revenues and capitalized production costs. The operating cost estimate was raised from $160/t (US$731/oz) to $180/t (US$757/oz). InnovExplo also lowered the proven and probable reserve estimate as they raised the cut-off grade. The PFS estimates a 5 year mine life for total production of 114,916 oz. The PEA had assumed total production of 145,073 oz. Using an average gold price of US$1,361/oz (C$:US$ - 1.12), the PFS estimated an after-tax Net Present Value ( NPV ) @ 5% of $15 million. The PEA had used a higher discount rate of 7%, and estimated an after-tax NPV of $29 million. The PFS showed a slight improvement in NPV when the SAMS technology is used. This method lowers operating costs to $157/t (US$642/oz). Management is currently gearing up for a mine testing program, wherein they will extract 30,000 tonnes of ore, and use custom milling for processing. The company intends to pursue project financing based on the PFS results and recommendations. MQR s shares continue to be significantly undervalued. The shares are up 23% since we initiated coverage on September 5, 2014. Key Financial Data (FYE - June 30) (C $) 2013 2014 Cash $2,093,271 $1,245,702 Working Capital $1,769,314 $1,084,618 Mineral Assets $12,531,059 $3,875,783 Total Assets $14,682,178 $5,232,586 Net Income (Loss) -$540,522 -$10,509,087 EPS -$0.01 -$0.19 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 2 Overview On October 17, 2014, Monarques announced results of a prefeasibility study completed on the 100% owned Croinor project by InnovExplo Inc. The project covers 128 km² on 297 mineral claims, and a mining lease. The following map shows the locations of the four projects that are currently in Monarques portfolio - Croinor Gold, Simkar Gold, Regcourt Gold, and Belcourt Gold. Source: Company The properties are located in the Abitibi Greenstone Belt. As discussed in our initiating report, the region has multiple producers with excess mill capacity, offering Monarques several opportunities to go into production quickly, and with less upfront capital, using custom milling. Croinor and Simkar are the two key projects in the portfolio. Monarques is expecting to put Croinor into production in the near-term. PFS Results InnovExplo has not made any changes to their original NI 43-101 resource estimate reported in the 2012 PEA. As shown in the tables below, InnovExplo estimates measured and indicated resources of 960,700 tons @ 7.45 gpt totaling 230,000 oz, and inferred resources of 227,800 tons @ 7.03 gpt totaling 51,500 oz. This is based on a 3 gpt cut-off grade. 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 3 Source: Company InnovExplo s model was based on 1,560 m strike length, 230 m wide, and up to 500 m depth, below surface The following table compares the PFS and PEA results. The table also shows the potential impact of using a new mining technology (SAMS ) for narrow, and inclined orebodies, such as Croinor. As in the PEA, the PFS proposes longhole and the room-and-pillar mining methods. The initial (pre-production) capital cost estimate is $20.28 million, excluding initial production revenues and capitalized production costs. The PEA had estimated $18.26 million. We had used $21.92 million in our models. 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 4 Source: Technical Report The Croinor property does not have an electric power line that runs into the property. The capital cost estimate includes the cost to extend a 25 kv transmission line from the nearby Chimo mine site. The mine is currently flooded to the portal entrance. The cost to dewater the mine is estimated to be $1.19 million. The operating cost estimate was raised from $160/t (US$731/oz) to $180/t (US$757/oz). We had used $176/t in our valuation models. Based on proven and probable reserves of 541,534t @ 6.77 gpt, the PFS estimates a 5 year mine life with annual production ranging between 21,259 oz and 40,540 oz, for total production of 114,916 oz. The PEA, which used a lower cut-off grade, had assumed production of 145,073 oz. Using an average gold price of US$1,361/oz (C$:US$ - 1.12), the PFS estimates a before-tax Net Present Value ( NPV ) @ 5% of $25 million, and an after-tax estimate of $15 million. The PEA had used a higher discount rate of 7%, and estimated a before-tax NPV of $43 million, and an after-tax NPV of $29 million. The PEA had used an average gold price of US$1,495/oz (C$:US$ - 1.03). The PFS NPV dropped primarily due to lower production, and higher operating cost estimates. The NPV shows a slight improvement when SAMS is used. This method lowers operating costs to $157/t (US$642/oz), and increases the before-tax NPV @ 5% to $27 million. The pre-tax internal rate of return jumps from 34% to 56%. InnovExplo recommends that following mine dewatering and rehabilitation, a test stope should be excavated to confirm the viability of the technology. As discussed in our initiating report, SAMS was developed by Quebec based private company Minrail. According to Minrail, their technology has the ability to: extract ore at sloping surfaces between 10 and 45 degrees mechanize the vast majority of manual tasks that have historically been associated 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 5 with ore extraction reduce ore extraction costs to approximately $25 / ton compared to $75-$100 / ton using conventional mining methods reduce capital costs for infrastructure such as stopes, ramps and underground access points by 50%. be environmentally safe as it produces significantly less surface waste material than conventional ore extraction methods; also, the technology does not use diesel provide a safer environment for miners The technology has been in development since the early 2000s, but has yet to be commercially deployed. Therefore, the long-term viability and efficiency of the technology is currently unproven. Custom milling - As in the PEA, the PFS assumes ore from Croinor will be processed using custom milling at the Camflo mill. There are four mills located within 120km of the project. Management indicated that they are currently in discussions with various mills in the region to determine the optimal option for its projects. The map below shows the four mills. Source: Company The Beacon Gold (900 tpd capacity) - The mill is currently owned by a group of private investors. The Aurbel Gold mill (1,200 tpd) is owned by QMX Gold Corporation (TSXV: QMX). QMX recently announced that they will seek custom milling options as they 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 6 mine out their Lac Herbin mine. The Sigma-Lamaque Complex (2,200 tpd) - On September 4, 2014, Integra Gold Corp. (TSXV: ICG) announced that it has entered into an agreement to purchase the Sigma-Lamaque milling facility for $7.55 million. Camflo mill (1,200 tpd): X-Ore had used this mill for custom milling ore from Croinor from 2003-2005. The mill is owned by Richmont Mines (TSX: RIC), and is 105 km from Croinor. Richmont recently stated that they are seeking custom milling options starting 2015, as their Monique and W Zone mines are expected to run out of ore. PFS Recommendations InnovExplo recommends a two phase program totaling $5.66 million. Phase 1, estimated at $2.36 million, includes a drilling program to potentially upgrade the inferred resources. Phase 2 - upon positive results from Phase 1, Phase 2 drilling of 30,000 m is recommended. The cost of Phase 2 is estimated at $3.30 million. Development Plan The project has already received a Certificate of Authorization to operate the mine. The company is required to attain the following permits for the development and operation of the Croinor mine: Wood cutting Gravel pit Construction Explosive Fuel storage Beaver dam dismantling Management believes they will be able to attain these permits in 3-5 months. In July 2014, Monarques commenced field work on Croinor to better evaluate the overall potential of the property. In the program, the company will revisit historical showings, and conduct a geological reconnaissance on geophysical anomalies. Management indicated that they expect announced results from this program in the next two to three weeks. As discussed in our initiating report, management is currently gearing up for a mine testing program, wherein they will extract 30,000 tonnes of ore, and use custom milling for processing. The objective of the program is to test the long-term viability of the Minrail technology. Based on the average grade of 7.45 gpt for measured and indicated resources, the 30,000 tonne program, we estimate, could potentially produce 6,970 oz, and generate US$9.07 million in revenues (assumptions: gold price of US$1,300/oz; recovery rate of 97.5%). Management estimates the total upfront cost of the program at $9 million. The company has started seeking potential joint venture partners, or other sources of financing. 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 7 Financials At the end of FY2014 (ended June 30, 2014) the company had cash and working capital of $0.72 million and $1.08 million, respectively. We estimate the company had a burn rate (cash spent on operating and investing activities) of $0.17 million per month in FY2014. The following table summarizes the company s liquidity position at the end of FY2014. (in C$) 2013 2014 Cash $2,093,271 $724,538 Working Capital $1,769,314 $1,084,618 Current Ratio 5.63 4.98 LT Debt/ Assets - - Monthly Burn Rate (incl. investing activities) (169,382) (170,536) Cash from Financing $2,723,141 $1,273,862 According to management, the company currently has approximately $0.80 million in working capital. The company intends to pursue project financing based on the PFS results and recommendations. Stock Options and Warrants Valuation and Rating The company currently has 3.70 million options outstanding (weighted average exercise price of $0.25) and 16.29 million warrants outstanding (weighted average exercise price of $0.23). At this time, none of the stock options or warrants are in-the-money. As most of the key inputs were in line with our estimates, our Discounted Cash Flow (DCF) valuation remains at $0.49 per share (see below). Note that we have continued to evaluate the company based on 100% of the measured and indicated, and 50% of the inferred resources. 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 8 DCF Valuation Croinor Tonnage (M&I + 50% Inf) 1,074,600 Weighted Avg Grade (gpt) 7.41 Recovery 97.50% Recovered Au (oz) 248,287 Production Rate 425 tpd in Year 1, ramping up to 750 tpd by Year 4 Mine Life (years) 5 Operating costs ($/t) - added a 10% premium to the PEA estimate $176 Initial Capital Cost (excl pre-production revenues and costs) - $, millions - added a 20% premium to the PEA estimate for conservatism $21.92 Simkar Tonnage (M&I + 50% Inf) 270,745 Weighted Avg Grade (gpt) 5.42 Recovery 97.50% Recovered Au (oz) 45,754 Production Rate 425 tpd Mine Life (years) 2 Operating costs ($/t) $130 Initial Capital Cost - $, millions $12.50 Long-Term Gold Price (US$/oz) $1,200 Long-Term C$/US$ 1.10 Discount rate 11.5% Net Asset Value (C$) $31,079,064 Current Working Capital (estimate) $759,618 Fair Value of MQR $31,838,682 No. of Shares 64,585,204 Fair Value per Share ($) $0.49 The sensitivity of our valuation to gold prices and discount rates is shown below. 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 9 Gold Price (US$/oz) 0 $800 $1,000 $1,200 $1,500 $1,800 7.0% -$0.46 $0.09 $0.64 $1.46 $2.28 9.0% -$0.45 $0.06 $0.57 $1.33 $2.09 Discount Rate 11.5% -$0.44 $0.03 $0.49 $1.19 $1.88 13.0% -$0.43 $0.01 $0.45 $1.11 $1.77 15.0% -$0.42 -$0.01 $0.40 $1.02 $1.63 Risks We reiterate our BUY rating, and maintain our fair value estimate of $0.50 per share. Shares have performed well since we initiated coverage last month. We continue to believe the next 6 to 12 months will be eventful as the company advances Croinor into production. The following risks, though not exhaustive, may cause our estimates to differ from actual results: The value of the company is dependent on gold/silver prices. The company does not currently have any operating mines. Exploration and development risks. Access to capital and share dilution. Minrail s technology has yet to be proven commercially. Monarques may not obtain the best/optimal custom milling option in the region. No NI 43-101 economic studies have been conducted on Simkar. We continue to rate the shares a risk of 5 (Highly Speculative). 2014 Fundamental Research Corp. 10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront www.researchfrc.com

Page 10 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. 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